USD/INR likely to gradually rise to 67.50 by year-end, owing to RBI’s monetary divergence with the Fed: Commerzbank

The Goods and Services Tax (GST) Council has assigned the tax rates for around 1,200 goods and 500 services ahead of the planned implementation on July 1. There will be four tax rates, ranging from 5–28 percent.

All that is now pending for the Council to finalise are the rates for six more categories of goods, and for the states to complete the ratification process of the state GST bills. These are expected to be completed in the next couple of weeks and just in time for the Council’s scheduled implementation.

The GST is viewed as a milestone for India as it will simplify the tax code across the state and central governments. More pertinently, it sends a powerful signal on the government’s ability to push through its reform agenda. The market’s optimism over GST, along with Prime Minister Narendra Modi’s strengthened political position has pushed the USD/INR down by around 5 percent over the course of this year to the 64.50 level.

"However, looking ahead, we expect USD/INR to gradually rise to 67.50 by year-end, driven by RBI’s monetary divergence with the Fed," Commerzbank commented in its latest research report.